'Streamlining' of HAMP is Starting to Pay Off

The pace of mortgage modifications picked up in the second quarter as a streamlined version of the U.S. government’s Home Affordable Mortgage Program (HAMP) started to produce results.

HAMP, launched in 2009, was designed to help homeowners who are struggling, but still making timely payments, to avoid default. It allows servicers to modify terms of loans guaranteed by Fannie Mae or Freddie Mac in order to lower monthly payments. In January, the U.S. government started offering a streamlined modification process for borrowers who met the basic criteria for HAMP but had already missed three mortgage payments. These borrowers are put in a three-month trial payment plan.

By the second quarter, a large number of borrowers had completed this trial period, resulting in a spike in permanent loan modifications.

Streamlined HAMP accounted for 7,811 loan mods, or nearly 13% of the 60,926 total loan mods completed in the second quarter. The program helped account for the 6% rise over 57,582 in the first quarter.

A single servicer, Ocwen Financial Corp., was responsible for 4,112 streamlined HAMP mods, or more than half of the total.

Ocwen said it expects to complete even more loan mods in the third quarter, as its overall modification activity has doubled since July due to the streamlined program, and it expects modification activity to remain elevated for several months.

The servicer expects that the increased cash flow from the successful modifications will outweigh the costs of unsuccessful modifications, which have longer liquidation resolution timelines and likely higher loss severities than they would have had they not been included in the program.

To date, nearly 2.7 million modifications and forbearance plans have been started under various Making Home Affordable programs.

The Treasury Department also provided its servicer assessment results. Ocwen, JPMorgan, Select Portfolio Servicing and Wells Fargo were found to need minor improvements. CitiMortgage and Nationstar were reported as needing moderate improvements to their programs.

It cited Bank of America as needing substantial improvements; the servicer had an unacceptable level of income calculation errors, timely HAMP evaluation and incentive payment data errors.

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